And perhaps define yourselves. Along with most of the general public, I am now very confused about exactly what kind of economy we are running. Just about all US politicans, and nearly all true-blue Aussie officials, of both parties, reflexively shun labels such as ‘socialist’ or ‘nationalisation’. Terms such as ‘the market’, or ‘free enterprise’, or ‘deregulation’ are much more acceptable. And the cargo cult of ‘growth’ is repeated by all parties like a mantra. It isn’t even up for discussion.
But before offering the one serious thought for this posting, about the dangers of massive taxpayer support for industry, I will take the opportunity on this warm but not sweltering Australia Day 2009 to wish you and me and us a properous year. And a responsible one, in which we all take on the clear thinking needed to get us through these challenging times. It is not likely to be a walk on the beach in one of the luckiest countries on earth – we’ve had that long enough. Now we have to really use our brains to see beyond rhetoric, received wisdom, and unified stupidity from our elected officials.
Now to the point:
We all understand, without attending a sngle university course in economics, that it wouldn’t have been a good idea for governments to have propped up the horse and buggy industries, along with all those dependent on them, such as stable builders, manure removers, bridle makers, etc. When the internal combustion engine, in the form of the motor vehicle, started becoming widely used, some industries died and others, such as road building and tire manufacturing, became profitable. Since then, the world has spun a few times, and now we need different solutions.
Likewise, we are seeing a dramatic change in the fortunes of print newspapers, due to the influence of the internet and news aggregation sites and ‘open journalism’ sites such as this one. Does that mean the Sydney Morning Herald would one day be eligible for tax payer subsidies, to keep it going in the face of reduced demand for its product?
You can see the line of reasoning, and it is eloquently argued by John Humphries in an article in the Australia Day Canberra Times. He is a Research Fellow at the Institute for Independent Studies, and my understanding is that the CIS is big on market forces. He argues that not only does massive subsidisation of specific industries reward bad management, it also makes the whole economic structure much more dependent on political whim and therefore more liable to corruption. It distorts the entire basis of economic decision making. And that is not just bad for the economy, it is also bad for democracy. These are not quite the words he used, but he mentions the ‘moral hazzard’ of businesses knowing that they can keep their profits but the government will step in if there are losses.
That approach leads to an ever longer line of demands: should I be compensated for having been disadvantaged career-wise as a single parent? Or should people living in remote, uneconomic places be propped up so they can stay there, because of historic injustice? opps, some are, and that relates to the second half of Humphries article: government stimulus packages. He notes that the massive $9 billion hand-out in December achieved nothing much. I reckon a smaller amount would have put solar hot water on a lot of government housing, and would have created a lot of jobs as well as long-term money in the pocket for those tenants who would save on their electricity bills.
Distorting the market and influencing individual decision making to perpetuate dependency is surely not what good social or economic policy is about. Even less about rewarding industries that couldn’t see the writing on the wall: I don’t want their buggies and don’t want to pay them to keep producing them. There are other jobs to be had, and the sooner the small entrepreneurs are allowed to blossom, the better. We are still a lucky country in that regard, there are lots of them out there, many of them investing in the equipment and skills that let them meet real, not artifical, demand.
The other interesting fact in the Humphreys article was the mention that our GDP growth was just 0.1% in the September quarter, but our population growth was 0.4%. Therefore, he concludes, our GDP per person has dropped. Another sensible thought follows: real growth should increase GDP per capita, rather than inflate GDP through non-productive consumerism of goods (and jobs) generated overseas. It is possible to be lucky without being smart, but that kind of luck runs out when the mines close in WA.
Connecting those dots would lead to a population policy for Australia, but that’s a bridge too far on Australia Day.
January 26, 2009 | Ronda Jambe
Will the real capitalists please stand up?
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“I will take the opportunity on this warm but not sweltering Australia Day 2009 to wish you and me and us a properous year.”
Also on this day which is also Chinese New Year, I wish you and Graeme “Gung Hay Fat Choy” or “Best wishes. Have a prosperous and good year.”
Comment by Taluka Byvalnian — January 26, 2009 @ 6:04 pm
When the U.S. government acquired a share of my credit card debt when it decided to shore up Citigroup in October 2008, I knew we were at the end of capitalism as we once knew it.
Comment by Terry — January 26, 2009 @ 7:08 pm
Hi, just happened in. Going to lurk awhile and hopefully will have something to say.
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Comment by StephanieBWilson — January 26, 2009 @ 7:10 pm
“Connecting those dots would lead to a population policy for Australia, but that’s a bridge too far on Australia Day.”
Australia’s over-population – in relation to only a third of it being habitable, and the lack of water and infrastructure – must be thumped home to our idiot, growth-mad politicians.
Any politician electable (including Greens who now never mention population) has been suckered by big business demands for more and more customers.
All immigration should stop, and ways of gradually reducing population found.
Comment by Leigh — January 26, 2009 @ 7:42 pm
I should also say that Australia Day is a farce: successive Governments have over-populated the country, allowed industry to go off-shore, allowed jobs to disappear without retraining for new jobs, and generally stuffed up the environment.
Nothing to be proud of in that! There is a complete ‘nothingness’ about being Australian these days.
Comment by Leigh — January 26, 2009 @ 7:47 pm
Yes well one needs to be bit careful with Humphries, he is on the extreme end of “rational” economics.
There is always a role for government to fulfil with regard to business and that would be fostering new industries and technologies. It’s just that they are addicted, like business, to the status quo.
The right wing ideologues claim that it is market forces that create inovation. This is plainly wrong, it is not in the self interest of business to create the conditions that will destroy markets for their extisng products.
Comment by Patrick B — January 27, 2009 @ 10:56 am
Yes, Patrick, the most resistant to change are those with most invested in the status quo. So innovation maybe comes from the smaller, high risk entrepreneurs. As we know, new businesses fail at a startling rate, but some succeed wonderfully and form the basis of a new industry.
That was where Joseph Shumpeter’s famous phrase ‘creative destruction’ comes from: old structures sometimes need to be torn down in order to clean out the cockroaches. (That metaphor comes from cleaning out a disgusting shed at the coast a few days ago.)
Comment by ronda jambe — January 27, 2009 @ 11:17 am
To your title. Late in 1945,the ones who had left the country to avoid Mussolini’s ire started to return to help in the liberation or Italy from fascism. One of them, an eminent Liberal, Ernesto Rossi, in an article on the weekly L’Espresso said: ‘CAPITALISM IS DEAD’. He had been at the Bretton Wood Conference and noted that its participants were Politicians, Bureaucrats, Financiers and Economists. All salaried people and not Capitalists.
I believe him right as I see that all the ones who make decisions to day have nothing to loose but a salary. These are in substance ‘People with diminished responsibilities’.
Comment by albert trianni — January 27, 2009 @ 10:02 pm
Capitalism is dead. All decisions now come from Politicians and Bureaucrats who are salaried officers. These are people with ‘diminished responsibilities’ as all they can loose, when something goes wrong, is just a salary. The Capitalist would loose all his possessions plus…
Comment by albert trianni — January 27, 2009 @ 10:47 pm
Thank you, Taluka, for your good wishes. We have much work to do.
Albert and others may be interested in a book by Lester Thurow called The Future of Capitalism. It is from 1999, but outlines the large forces that will shape the economies in the future, including population explosion and environmental decay. Well worth reading…
Comment by ronda jambe — January 28, 2009 @ 9:41 am
Patrick, commercial businesses and investors thrive or fail on their capacity to correctly identify and pursue profitable opportunities. The skills required for this are highly valued and are in great demand, particularly by firms and investors who operate globally. If there is a profitable opportunity available in Australia, it is unlikely to be overlooked.
Nevertheless, governments and public servants with little relevant expertise frequently think that their capacity to identify and pursue viable commercial opportunities exceeds that of the businessmen whose livelihood depends on that capacity. In practice this almost invariably leads to poor investment choices at great cost to the state concerned.
Innovation and growth come from entrepreneurial investments. Bureaucrats are anti-entrepreneurial, their incentives are to play the insider-outsider game, please the minister and not rock the boat. Government’s role is not to foster new industries and innovation but to provide tax, regulatory and other policy settings which encourage entrepreneurs.
Interventionist policies are based on the view that a government can obtain better economic results by direct intervention in the economy rather than by facilitating markets. There is little or no evidence to support such an approach. The Soviet bloc countries were strongly interventionist with extremely negative results. A 2006 World Bank report concluded that since the break up of the USSR, the economic well-being of the former Soviet bloc countries has been directly related to the extent to which they have opened up to trade and embraced pro-market capitalist policies. Within Australia, interventionist policies in three states around 10-25 years ago led to significant losses.
Queensland’s recent economic growth has been in spite of, rather than because of, government intervention. A major factor was booming world markets for minerals and metals, over which the Government has no control.
Comment by Faustino — January 29, 2009 @ 9:08 pm